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Start-Up Town

From the Magazine: Friday, October 10, 2008

The quiet little hippie city of Boulder, Colorado, has become a serious technology hub. Here’s how.

The discussion in the United States about national competitiveness has rarely been more lively. Two recent books, Fareed Zakaria’s The Post-American World and Kishore Mahbubani’s The New Asian Hemisphere, stress the rise of other nations, particularly China and India, and suggest there will be a decline in American influence. These authors and dozens of other commentators prescribe steps the U.S. government can take to help ensure, among other things, America’s status as the preeminent place for scientists and entrepreneurs to work.

Their suggestions are mostly sensible, such as reforming our immigration policy to accept a larger number of highly skilled immigrants. But they often emphasize a national solution—proposed reform in Washington, D.C.—and give short shrift to particular cities that are trying to be more attractive places for big brains.

Professor Richard Florida argues in his book Who’s Your City? that it is in fact “mega-regions” (not nations) that will drive the economy in the 21st century and that the competitiveness discussion should take place on this front. Financiers choose between New York and London (or Hong Kong or wherever), not between the United States and the United Kingdom. Technologists choose from among San Francisco and Boston and Shanghai: specific cities. In other words, this desirable class of economic growth generating talent—entrepreneurs, scientists, bankers, engineers—choose exactly where they want to live with great precision and care.

We have had to relearn that location matters. When the Internet first emerged, globalization manifestos foretold a world where place was irrelevant. “Anyone, anytime, anywhere” was the catch phrase. Yet certain industries continue to be overwhelmingly concentrated in certain physical places. For starters, creative output tends to come from teamwork, and teamwork still happens best in person. Florida calls this “the world is spiky” phenomenon, with the spikes representing economic activity bursting up from specific regions. “Despite all the hype over globalization and the ‘flat world,’ place is actually more important to the global economy than ever before,” writes Florida.

Despite the hype over the idea that ‘the world is flat,’ place might be more important to the global economy than ever.

This is particularly true in the world of entrepreneurship and innovation. Think Silicon Valley. Think eBay, Yahoo, Google, HP, Intel, Apple, Facebook, Oracle, Cisco, Sun, and dozens of other companies populating that small geographic pocket in Northern California. Other regions envy Silicon Valley mainly because of how it has contributed to the economic vitality of the Bay Area and California in general. It is the poster child for how high levels of entrepreneurial activity can accelerate economic growth. Consequently, American metropolitan areas such as Austin, Raleigh-Durham, Seattle, and Los Angeles are eager to attract or breed start-up entrepreneurs and capital. They want to be start-up hubs.

They pursue this goal by asking themselves the question, “How can we be like Silicon Valley?” It is the obvious question to ask, but it turns out it might be the wrong one—if Boulder, Colorado is any example of how to do it right.

In the past 15 years, Boulder has gone from a little hippie college town to a little hippie college town also boasting an impressive and growing congregation of Internet entrepreneurs, early-stage venture capitalists, and bloggers. How did Boulder pull this off? And what can other cities, policymakers, and entrepreneurs who want to boost their own start-up quotient—and overall competiveness at a local level—learn from Boulder’s success?

On November 10, 1995, somewhat on a whim, Brad Feld decided to leave Boston and move to Boulder. He had just sold his technology company and, flush with cash, was beginning a new career as a professional investor in start-up companies. He picked Boulder for personal reasons: “When I arrived in Boulder, I had no expectation of doing any business here. I expected to spend weekdays on either coast and the weekends at home.” Colorado was to be a beautiful and relaxing base camp. Accordingly, he co-founded a Silicon Valley venture capital (VC) partnership, and started many workweeks with a 6 a.m. flight from Denver to San Francisco to attend his Monday morning partner meeting. On the weekends, from a home nestled in a state park, he and his wife enjoyed majestic views of the Flatiron mountains, fresh air, and hiking.

That was the plan anyway. But dot-com mania gripped Silicon Valley throughout the late 1990s, and Feld, 42, needed to be in the middle of it. His mailing address may have been in Colorado, but his real home was 36,000 feet in the air, a place devoid of the quality-of-life benefits that inspired his move to Boulder in the first place.

But if he wanted to be a tech VC who lived in Boulder, travel was necessary. Notwithstanding a legacy of entrepreneurship in the storage and telecom industry, the Boulder/Denver region at the time was not a top market for software and Internet companies. And it was several notches less developed than the scene in California.

This did not keep him from trying to build up the Boulder tech community in his spare time.

After all, the more quality software entrepreneurs who lived in his own city, the less time he’d spend on airplanes.

Boulder did not become a start-up hub due to incentive-based tax policy to lure businesses, or special incubators, or mass investments in technical education.

One problem: he didn’t know a soul in town. So he started cold calling. One of the first people he contacted was Paul Berberian. Berberian, like Feld, moved to Boulder in 1994 to run his business LINK-VTC because “it was a cool place to live,” even though there “wasn’t much of a high-tech community.” But, he said, that “all changed when Brad Feld moved to town.” Feld also contacted Terry Gold, another local tech entrepreneur, unaware there were other geeks down the road. Feld invited him on a hike and enlisted him (and Berberian and others) to co-found a local chapter of the Young Entrepreneurs’ Organization. Feld recognized an essential first step of building a start-up community: organize what you already have.

Through the late ’90s, this small, energetic, and newly organized group of Boulder engineers and entrepreneurs started a handful of local web companies. Some petered out, a few succeeded—notably WebRoot, a security company, and Raindance, a teleconferencing company co-founded by Berberian—but most importantly, Boulder’s young talent pool accumulated experiences that would help them the next time around. As Feld puts it, “A whole generation of repeat entrepreneurs got created between 1995 and 2001.”

The seeds were planted. They were ready to welcome even more coastal migrants looking not just for pretty mountain views but also for real professional opportunities. They were ready for more venture money and more senior marketing executives. All they needed was a megaphone—some way to tell the world the Boulder story.

A recent report from the Kauffman Foundation entitled “Entrepreneurship and Urban Success” posits that local economic growth around an industry, at least at the outset, is often serendipitous. The semiconductor industry taking root in Silicon Valley and the automobile industry in Detroit were both more or less accidental, they say, the result of a few people happening to start there and then, in a virtuous cycle, attracting the like-minded.

It is indeed individuals who must start the cycle. Boulder did not become a start-up hub due to incentive-based tax policy to lure businesses, or special incubators, or mass investments in technical education (though some of these things were tried). Instead, it began with a group of individuals who moved to Boulder for various lifestyle reasons, but all the while were committed to working together to develop a local software and Internet industry. They were committed to developing a brand for the locality and jointly pushing it out to the world in order to attract and import experienced talent from elsewhere.

This started happening en masse when social media technology emerged. Boulderites leveraged new tools of personal expression such as blogs and podcasts to channel a natural spirit of self-promotion and evangelism for themselves and their community. They began reaching all corners of the world with their business ideas and theories—and the message that Boulder was a good place to launch a start-up.

Boulderites leveraged blogs and podcasts to channel a natural spirit of self-promotion and evangelism for themselves and their community.

Feld created his blog in July 2004, and it now serves more than 125,000 daily subscribers. His musings on venture capital, books, Colorado, and technology have made his among the world’s most popular VC blogs. With his partner Jason Mendelson, he also coauthors the blog “Ask the VC,” a Q&A website where they answer entrepreneurs’ questions about the start-up process. Their blogging generates goodwill in the entrepreneurial community. As a result, more entrepreneurs think of them when looking to raise money. Both these sites are in the top ten Google results for “VC blog.” (Disclosure: It was partially through Feld’s blog that I met and eventually worked for him and his partners for three months last year.) Following his lead, three out of four of Feld’s partners at his firm, Foundry Group, maintain personal blogs where they intermix VC musings with love letters to the city of Boulder. David Cohen’s ColoradoStartups.com is another popular blog, and so far this hacker and investor has profiled 150 local start-ups.

As Boulder blogs garnered national readership and prominence, a group of entrepreneurs used their new platform and reach to launch a high profile investment fund called TechStars.

TechStars’s motto is “the geeks shall inherit the earth.” It was co-founded in 2006 by Feld, Cohen, and two others. Think of it as a summer boot camp for wannabe Internet entrepreneurs.

Teams from all over the world apply for the program; ten are selected. This year, 400 applied, most of whom learned about it through the blogosphere. The chosen teams of start-up founders move to Boulder for the summer with nothing more than an idea. Once in Boulder, TechStars gives them seed funding, office space, and, most important, access to 50 mentors (I’m one of them) who spend time with each team over the summer. In exchange, TechStars takes 5 percent of each new company’s equity. After the first summer last year, seven of ten have raised additional angel or VC money, and—here’s the kicker—half of the non-Colorado companies decided to stay in Boulder for good.

It is a clever idea, and one largely inspired by a similar program that operates out of Boston and Silicon Valley called YCombinator. TechStars’s difference is its emphasis on community and mentoring. This attitude might be the Colorado trademark, as it informs other local initiatives such as StartupWeekend, an event founded in Boulder and since replicated in dozens of other cities where strangers gather over one weekend and commit to launching a web product, together, by Sunday night.

These efforts create a buzz about Boulder that brings in a flow of deal pitches to local investors.

Cohen now receives around 600 ideas a year, almost all of which originate from his blog. Feld says he has funded at least two entrepreneurs he first met through his blog: FeedBurner (which raised about $4 million from Feld’s firm and others and was eventually sold to Google) and NewsGator (which raised about $15 million from Feld’s firm). Feld estimates he’s backed as many as 50 local entrepreneurs since he moved there.

At a more macro level, venture capital investment across all sectors in Colorado hit a seven-year high last year. Tracking just Colorado IT companies, the PricewaterhouseCoopers MoneyTree Report, the most widely cited measure of VC activity, notes a slight quarter-by-quarter increase in software company financings from 1995 through Q1 2008, excluding the boom-and-bust aberration around 2000.

Venture capital investment across all sectors in Colorado hit a seven-year high last year.

The high-profile blogging and community initiatives have also inspired a wave of more experienced operators to move to Boulder to work at newly funded companies. The monthly tech meet-ups at the University of Colorado now draw over 300 people, up from 80 people just a year ago. It is this larger talent pool that has elevated Boulder to a start-up city comparable with Seattle, Los Angeles, New York, or Austin.

Most Boulder entrepreneurs I talked to said they are there first for lifestyle, then for work. Cohen explains his logic: “We all felt somehow drawn to Boulder…the lifestyle seemed laid back and healthy, and it was just plain beautiful here. The decision [to move and start our company in Boulder] was 90 percent personal.” Similarly, in 2006 the entrepreneur Robert Reich chose to headquarter his start-up Me.dium in Boulder and not San Francisco, Boston, or New York, citing cost of living and quality of life for the founders’ families as the top two reasons. Reich’s bio on his company website ends, “[Reich] enjoys all the benefits of starting a company in Boulder, CO, including a nomadic lifestyle, a sunburned head, and sandals that most people would mistake for some bear/mountain lion trap gone bad.”

This mentality is both one of Boulder’s great strengths—the eminent logic of working to live and not living to work, of prioritizing happiness and quality of life—and, its critics say, Boulder’s soft underbelly.

Silicon Valley insiders have a stock response to the Boulder value proposition: if you’re really good, you’ll be here. Michael Arrington, the most influential technology blogger on the Internet, wrote about this a few months ago on his TechCrunch blog:

“If you want a well balanced life, Silicon Valley is not for you. But if you want to change the world and are willing to do absolutely anything to achieve your dreams, there is no better place to be than here….It’s a competitive advantage to be here….Making lifestyle choices is fine, but don’t delude yourself into thinking those choices are anything but a tradeoff. If staring at lakes and skiing after work are important to you, don’t pretend to be surprised when your start-up doesn’t cut it.”

This set off a firestorm among secondary-market leaders debating whether tech entrepreneurs working outside of Silicon Valley are disadvantaged by not physically being in the epicenter. “On average, [Arrington’s] probably right. But of course you can’t over-generalize,” says Cohen, the angel investor.

As the beneficiary of the “big fish, small pond” phenomenon, the trade-off seems to work in Cohen’s favor. Sure, he misses out on top Silicon Valley investment opportunities, but he gets first dibs on the best Boulder deals. How you calculate this trade-off depends on how much variance you believe there is between a top Boulder deal and a top Bay Area deal, and the relative likelihood of being able to secure top deals in the crowded and winner-takes-all market of Silicon Valley.

However a start-up hub and its leadership define itself vis-à-vis the 800-pound gorilla, it’s clear that a gnawing inferiority complex is counterproductive.

“Trying to be like Silicon Valley is simply the wrong goal,” Feld says. “Tier 2 markets like Boulder shouldn’t try to be a Tier 1 market like Silicon Valley and Boston. Rather, they should focus on their unique characteristics.” Namely, its mountain lifestyle and high quality of life, with a small but supportive entrepreneurial community. Just as a small liberal arts college shouldn’t model itself after a large, more prominent research university, Boulder and its kin must put forth a unique offering. There is, after all, no one path to being a hub in an industry.

Boulder as start-up town is an ongoing project. Colorado is still only the ninth largest region for VC investment in the country. As the community scales up, it risks losing the personal, homey feeling that gives it an edge. And even Feld’s Boulder-based venture fund continues looking farther west for the best deals. Since his new fund opened in late 2007, five out of the first nine investments have been in California, with only two of nine in Colorado.

Nonetheless, Boulder’s ascent in the Internet world is striking. It highlights what a small group of self-assured individuals can do when united by a leader and—crucially—empowered by the Internet to spread their ideas. Feld says Boulder will be his base for the “balance of my time on this planet,” which means skiing-crazed, software-coding Boulderites will likely be entrepreneuring for years to come. The Western frontier is open, and geeks are populating the range.

Ben Casnocha is the author of My Start-Up Life: What a (Very) Young CEO Learned on His Journey Through Silicon Valley (Jossey-Bass). He is a commentator on public radio’s Marketplace and writes a popular blog on business, books, and ideas.

Illustration by Ellen Weinstein.

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